Enlightened Economics

The GDP statistic has to be retired. It is like an old shoe that no longer fits. GDP is fatally flawed as a measure of economic and societal well-being and economists know it. Yet it is universally used to compare living standards and economic growth like one compares sports scores. Furthermore, as each nation compiles it a little differently, especially regarding the inflation ‘deflator’ component, such comparisons are nonsensical. What is exciting is that there are some old and new indices getting attention that could replace the GDP. This is most welcome.

Alternatives to the GDP
Technically, GDP is the total market value of all final goods and services sold in an economy in any particular time period. As we progress in an era of Enlightened Economics, it is destined to be superseded by new indices geared to more accurately measure affluence, sustainability and quality of life, generally. Such indices include the Index of Sustainable Economic Welfare (ISEW), the Genuine Progress Indicator (GPI), and variants of them. Other intriguing indices include the Calvert-Henderson Quality of Life Indicators, the UN’s Human Development Index, and the Invincibility Index. The common thread in these indices is that as well as including economic activity, they also account for societal and environmental factors related to real human development – which the GDP does not.

The GDP statistic should be retired because…
• According to economist Clifford Cobb and colleagues, “Much of what we now call the growth of GDP is really just one of three things in disguise: (1) fixing blunders and social decay from the past [paying for pollution, costs of crime, etc.]; (2) borrowing resources from the future [GDP excludes the costs related to farmland depletion, water, other resources]; or (3) shifting functions from the traditional realm of household and community to the realm of the monetised economy [i.e. eating out, rather than at home].” (Text in parenthesis has been added for additional clarity.) For a fuller explanation, see “What’s wrong with the GDP.”

• Losses associated with natural and man-made disasters are not deducted from the GDP. For instance, Hurricane Katrina brought mass devastation. Yet the enormous economic losses were not deducted from GDP. But the clean-up costs were added though!

• GDP does not account for the value of non-monetary, economic, transactions. Such activities would include elder care by family members, and volounteer activities. In 2002, the International Monetary Fund (IMF) found that such activities represented the following shares of economic output: up to 44% of GDP in developing nations, 30% in transition economies, and 16% in Organization for Economic Cooperation and Development (OECD) economies (Schneider and Enste, 2002). See The Genuine Progress Indicator 2006.

• GDP was initially created to measure WW11 wartime production. Its principal creator Simon Kuznets cautioned that “[t]he welfare of a nation can scarcely be inferred from a measurement of national income” (Kuznets, 1934).

- There is even evidence that a focus on GDP at the expense of other quality of life indicators can lead a society to a false sense of worth and even create unhappiness. In The Loss of Happiness in Market Democracies published in 2000, Emeritus Professor Robert Lane of Yale University compiled exhaustive research data showing the relationship of GDP to increasing unhappiness. He states, “Amidst the satisfaction people feel with their material progress, there is a spirit of unhappiness and depression haunting advanced market democracies throughout the world…” From his perspective, the rigors of modern market economies increasingly create family and relationship break-ups with subsequent loss of companionship and happiness. Acknowledging this trend, the World Health Organization recently predicted that by 2020, depression will be the 2^nd leading cause of disability, just behind cardiovascular disease. (However, with rising consciousness, I believe this trend will be reversed.)

GDP is short-sighted accounting. Things that bump-up GDP in the short-term often have harmful long-term human and financial consequences and costs.

From the foregoing it is clear that the GDP statistic has little relevance as a measure of our present day material and social well-being.

GDP provides a false sense of progress
Comparing the GDP to GPI (Genuine Progress Indicator) numbers illustrates how false is the sense of gain with the GDP in regard to our human condition. Look at this chart comparing the real (inflation adjusted) US per capita GDP and GPI growth between 1950 and 2004. Note how the GPI figure significantly lags GDP. It suggests that when items such as resource depletion, crime costs, and volounteer sector costs,’ etc., are accounted for, the per capita net benefit of a rising GDP is fully negated.

Source: (c) 2007 Redefining Progress

Retire the GDP now
Some of the ways social and non-market costs are included in the ISEW, GPI, etc., are definitely controversial. Perhaps for these reasons such indices have not as yet achieved common usage. But the GDP, created for the very reason of measuring WW11 wartime production, has been badly and wrongly used as a measure of our quality of life. Enlightened Economics demands the GDP be retired and replaced with more enlightened indices!

© Ron Robins, 2008

The US has achieved many periods of sustained and rapid economic growth. And it can do so again. However, as history demonstrates, a big bust results if the growth is spurred by excessive monetary and credit expansion. For the past 25 years or so the US economic expansion has followed the woefully excessive monetary and credit expansion script. The US will not be able to pull itself out of the present economic malaise without dealing with its inordinate levels of debt and ‘exponential’ credit growth.

It is rather sad when most economists and investment industry professionals do not talk about the enormity of the debt and credit expansion problem. Unfortunately, it seems these ‘experts’ are either told to shut-up, prefer to overlook the obvious, or to simply lie about it being a problem! After all, what bank economist wants to tell his bank that its customers should reduce their borrowings, and thereby reduce the bank’s lending and subsequent earnings! More than likely the bank’s stock price would plummet. There is simply no incentive for most establishment economists to be truthful and every reason for them to lie.

For the US to experience a true long-term economic revival, I believe four things need to happen.

1. US debt growth will have to about match, dollar for dollar, GDP and income growth.

Presently it takes around $6 of new debt to create $1 increase in GDP and $4.75 of new debt for every $1 increase in national income. This is bubble territory. Look at this chart.

Source: Michael Hodges America’s Total Debt Report

The chart shows the explosive growth of America’s debt in relation to its national income. If income grows slowly while borrowing grows rapidly, eventually there is a solvency problem. That is where the US is today. If the borrowing were primarily to increase overall productive capacity – the increase in production would have created greater income to help offset massively increased borrowing. But this has not happened. Much of this bloated US debt load is concentrated in the financial, mortgage and government sectors, and for the financing of its trade deficits. The debt contraction will be particularly acute in areas related to the financial and mortgage industries and generate extraordinary difficulties for the economy at large.

2. Debt to GDP ratio has to come down by around one-third

Debt at around 350% of GDP and growing 50-100% faster than the rate of GDP growth for more than 25 years – is utterly unsustainable. Following on from point 1 above, the US is basically beginning to experience an insolvency problem. Credit availability is declining while default rates soar. As a result, it has to reduce its overall debt burden. Nations frequently resort to inflating their money supply to deal with their debt burden, as Germany did in the early 1920s and Zimbabwe is doing today. So with the significantly increased amount of money swashing around, debts not being indexed to the growth of the money supply, are more easily paid off. Present moves by the US Federal Reserve now indicate that this is the path they have chosen. According to shadowstats.com, the broadest measure of US money supply is growing at an annual rate of around 17%!

3. Personal savings rates have to move beyond 10% per annum– from around zero at present.

High growth economies have high savings rates. It is that simple. The savings go towards spurring productive capacity – rather than to consumption – and produce fast income growth. In most years between 1952 to the late 1980s, the US enjoyed a personal savings rate above 10% of income. (See this graph by the Bureau of Economic Analysis.)

4. The above 3 conditions have to persist.

It is no secret as to what are good, or bad, macro-economic conditions. The above are key conditions that have to be met to ensure true, long-term, high growth macro-economic performance.

Summary

The message is that the US must significantly reduce its overall debt levels, avoid building-up new debt in excess of GDP or income growth, and for individuals to start saving again. I have no-doubt that these conditions will be met. But before they are met the US is likely to experience an extended period of rolling recessions over many years. And a depression cannot be ruled out either. During this process I expect to see among Americans a transformation to higher consciousness and a growing understanding of economics and its relationship to natural law and the environment. Americans, and people everywhere, will come through this much wiser. A new global Enlightened Economics framework will be created and form the basis for improving living standards and quality of life for all in our world in the years to come.

© Ron Robins, 2008

Our financial overseers will create a world central bank in the next few years. Growing higher consciousness in the world will enable it to become a reality. This bank will have a mandate to monitor, regulate, and maintain global currency, credit, and debt issuance. It will ensure that growth of these activities roughly matches global economic output. It will come about as the chaos and inadequacies engendered in our present monetary system become evident to everyone and a world central bank seen as the best solution.

Individuals and groups in financial markets everywhere, lacking inner fulfillment, have demonstrated inordinate greed resulting in reckless financial games and gambling – are bringing the financial system to its knees.

Such mismanagement in the financial system, I believe, will require the new world central bank to disallow banks everywhere from continuing in unfettered debt creation and speculative excesses. In search of ever higher returns, banks created overly lax lending standards, highly leveraged loans, obscure financial entities bearing major financial risks unconsolidated in their financial statements, and generally ran down the quality of their assets and reserves to unsafe levels.

‘Shadow banking’ system larger than conventional banking
All the while an even bigger, massively leveraged, totally unregulated, thinly capitalized, ‘shadow-banking’ system was allowed to balloon by bank regulators. And it is now in the process of imploding! Bill Gross, managing director of PIMCO, the world’s largest bond fund, said this recently about the shadow banking system: “Our modern shadow banking system craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever.”

Due to the enormous growth of irresponsible central bank and banking activities globally, plus the vast, mushrooming credit creation of the shadow banking system – the world’s money supply is expanding out-of-control.

Unprecedented money supply growth creates inflation as bad as 1970s
Globally we see that, “China [is] registering an 18% plus growth in money, India 22.4% a year growth, Singapore 14%, Britain up by 12.3%, Western Europe 11.5%, Australia 16%, Canada 13%, and Saudi Arabia 22%!” So says The Mogambo Guru, Richard Daughty. These are ‘broad money supply’ figures. John Williams of www.shadowstats.com shows the US broad measure of money supply, as of early February 2008, increasing at annual rate of 16.8%. (The US Federal Reserve stopped publishing this measure in March 2006 claiming it costs too much to produce. Many economists suspect that they just wanted to hide the ramping-up of the US money supply.)

Even Marketwatch’s chief economist, Irwin Kellner, is concerned about US money supply growth. He said recently, that, “The rate of growth for highly liquid funds which the St. Louis Fed calls MZM [i.e. physical money, checking and money market accounts, etc.]… soared by an annual rate of 22.7% between December 24, 2007 and February 18 of this year.” He adds, “… it has created a whole lot of inflation.”

The link between an expanding money supply and inflation is firmly established. As the Bank of England’s Governor, Mervyn King quoting a highly respected study, said, that “Over the 30 year horizon 1968-98, the correlation coefficient between the growth rates of both narrow and broad money, on the one hand, and inflation, on the other, was 0.99.” Thus in the words of Milton Friedman, the recently deceased Nobel Economics prize winner, “… inflation is always and everywhere a monetary phenomenon.”

In the US, consumer price inflation using the politically biased, understated, consumer price index (CPI-U) is in January 2008 up 4.3% from a year earlier. But using the CPI methodology as of 1980, it is almost hyperinflationary at close to 12%! Inflation in China is now running at 8.7%, while in the EU and the UK, though more moderate at 3.4% and 3.1% respectively, it is picking-up significantly and well above their respective central bank targets.

The foregoing suggests that the present global monetary and financial system is reaching a state of extraordinary instability. The danger is the possibility of rapidly growing, unstoppable inflation culminating in a hyperinflationary episode such as is now occurring in Zimbabwe. Or, a threat of a deflationary bust similar to the Great Depression.

Higher consciousness the only real answer
The only real answer to such economic threats is higher global consciousness. This, I am convinced, will gain traction. (See my post, The Missing Ingredient In Economics — Consciousness!). In future years, this higher consciousness will, amongst other things, first manifest itself by allowing our financial overseers to see the need for, and create, a world central bank.

In ages past central banks utilized gold to help create monetary order. A new world central bank might well find a role for gold again, but in an updated, modern form. I will write about this in another post.

© Ron Robins, 2008

Most major markets influencing business and consumer decisions are not ‘free.’ They are manipulated by governments to varying degrees. Governments feel that it is for ‘social good’ that they intervene. Here is a brief list of key markets and descriptions of the government interventions. You can decide about the worthiness of these interventions yourself.

Currencies
The world’s most important currency, the US dollar, does not really trade freely. The US Treasury established in 1934 the ‘Exchange Stabilization Fund’ specifically to ‘manage’ the US dollar exchange rate. Its dealings are secret. In 1987, 1998, 2003/4 and likely at many other times, the treasury departments and possibly central banks of the US, Japan, the EU and other countries collectively intervened to manipulate currency values. China has pegged its currency, the renminbi, to the US dollar for many years. As the US complains about Chinese currency manipulation, it needs to come clean about its own efforts first.

I suggest that currency traders and speculators should not be blamed for strong currency movements. They are nearly always reacting to bad or anti-market policies of governments and central banks and generally reflecting the ‘collective consciousness’ of the global financial community.

Stock markets
Stock markets are not free of government intervention either. After the 1987 US stock market crash, President Reagan established the Working Group on Financial Markets, (the ‘plunge protection team’), to effectively stop stock market crashes. How and when it operates is again secret. Journalists and others have tried for years to get information of the Working Group’s meetings and activities, but to no avail. On January 22, 2008, it was believed that the US Federal Reserve purposely reduced its Federal Funds rate by 0.75% just before the US Dow Jones Index was due to open 600 points (over 5%) lower! This move potentially saved the US stock markets from a major crash that day. Here we have a clear – and public case – of market intervention for the purported ‘public good.’

Interest rates
The US Federal Reserve, the EU Central Bank, Bank of Japan – in fact nearly all central banks regularly announce interest rate changes to short term securities. And through their buying and selling of government bonds, they also influence rates on all longer-term securities.

Unfortunately, a largely economically illiterate public clamours for manipulated, low interest rates. Central banks generally oblige, despite them supposedly being mostly ‘independent.’ Artificially induced low interest rates then create excessive borrowing, such as we have seen in housing. A housing bust follows and everyone blames the government – rather than themselves! (Question: who is really best able to set interest rate policy? Is it a country’s central bank or the free market?)

Oil
By controlling over 40% of global oil production, OPEC (the Organization of Petroleum Exporting Countries), stage-manages global oil production and prices. Not only do they control production levels, but they have been free to cite their oil reserves’ data with no independent verification of what they do actually have in the ground. And there are many reasons – as Matt Simons, eminent oil analyst, suggests – why we need to be sceptical of the Gulf States oil reserve numbers. Again, with the reserves being unaudited by any reputable international agency, OPEC is able to abnormally influence oil prices.

Food
Governments influence agricultural markets to a massive degree. Annual agricultural subsidies in the EU amount to about $75 billion; in the US $55 billion. These subsidies with those of many other countries dramatically distort global agricultural production and prices. The Doha round of World Trade Organization (WTO) free-trade talks floundered largely because developing countries demanded that agricultural trade distorting practices be reduced and eliminated. The developed countries resisted and the trade talks collapsed. For much of the developing world the one area where they could compete – and potentially bring them out of poverty – is with agricultural exports, even with today’s significantly increased transportation costs.

Ethanol and biofuels is another area where government intervention to support markets has caused dramatic negative market dislocations. Food cropland and food crops now going towards the production of ethanol and biofuels has resulted in significantly increasing food prices around the world. In numerous developing countries it has contributed to food shortages and riots.

Two final thoughts…
Unfair economic or financial advantage is often gained by those who have inside knowledge of where and when governments intervene. Indeed, they can ‘front-run’ the governments’ actions and make huge fortunes without the public ever knowing what is going-on. This probably occurs especially in stock markets, where it might be welcomed by the governments who see it aiding their efforts to manipulate markets.

This discussion demonstrates that society does not have, nor apparently really believes in, wholly free markets at this time. Why? It feels that individuals cannot be trusted to do the ‘right’ thing. Yet, as we see here, governments frequently do not do the right thing either! In other posts I demonstrate that high consciousness individuals are much more likely to do the’ better’ thing. Such individuals will allow truly free markets to function and will create affluence, environmental sustainability, and fulfillment, beyond anything envisaged today. To turn things around and to begin to understand how free markets with higher consciousness individuals can work, see these posts Free Markets Need ‘High Consciousness’ Individuals and The Missing Ingredient in Economics - Consciousness!

© Ron Robins, 2008

Adam Smith in 1776 said in his “Wealth of Nations” masterpiece that prices in a free market are as if determined by an ‘invisible hand.’ This invisible hand in free markets exists due to innumerable individuals voluntarily buying and selling goods and services by mutual consent. Such exchanges are at prices and quantities unhindered by monopolistic, oligopolistic or governmental influences. I believe that this ideal can only be optimally attained when individuals are fully free and fulfilled within themselves, enjoying higher consciousness.

Critics of free markets today, such as Joseph Stiglitz, Nobel Economics Laureate, say that true free markets can only exist if pertinent knowledge is fully and equitably distributed among all market participants. Now he says since this is rarely the case ‘free markets’ usually need some form of government regulation. This is a popular proposition, witness the increased US Federal Reserve’s tightening of loan standards for sub-prime mortgage loans. (I refer again to this below.)

But suppose markets can be made more efficient and uniform in the way knowledge about them is promulgated? Today, we have the internet. This allows for the mass transmission of knowledge. As the internet becomes increasingly ‘dense’ in terms of knowledge and society ever more sophisticated in its use, the argument about knowledge in any given market not being widely disseminated becomes less plausible.

Another criticism which I see regularly and is particularly apt, say in regard to the sub-prime mortgage mess, is this: That many individuals lack the knowledge and/or intellectual ability in distinguishing fact from fiction when making purchases, and therefore need ‘protection’ by the government or some other party. Were there no means of counteracting this insufficiency in individuals, those proposing such intervention would have a valid point. However, there is a way of counteracting this human insufficiency and that is because our individual and collective consciousness is now undergoing an extraordinary transformation where these deficits are being righted. This development is a core premise of this Enlightened Economics blog, integrating the knowledge of consciousness into economic theory.

The new evolving theory of Enlightened Economics will demonstrate that as higher consciousness permeates society, individuals will have the required insight and intellectual facility for optimal purchasing decisions, without much need, if any, of government regulation. Thus, with individuals enjoying higher consciousness free markets can rise to their optimal state and produce affluence and fulfillment for all.

© Ron Robins, 2008

For decades, each dollar of new debt has created increasingly less and less national income and economic activity. With this ‘debt productivity decline,’ new evidence suggests we could be near the end-game in this economic cycle. American collective consciousness will need to change to accept the new reality.

Getting less and less economic benefit from each dollar of new debt is becoming an enormous and onerous problem for the US. Quoting Michael Hodges in his Total America Debt Report, “In 1957 there was $1.86 in debt for each dollar of net national income, but in 2006 there was $4.60 of debt for each dollar of national income - up 147%. It also means this extra $2.74 of debt per dollar of national income produced zilch extra national income. In 2006 alone it took $6.32 of new debt to produce one dollar of national income.” (Underlining added.) See his chart below.

Source: Michael Hodges America’s Total Debt Report

According to Dr. Kurt Richebacher, writing for The Daily Reckoning, US credit expansion in 2005 was $3,335.9 billion and matched by nominal GDP growth of $752.8 billion, equalling $4.43 in new debt for each dollar of GDP growth. In 2006 total credit market debt increased $3.9 trillion while nominal GDP (seasonally adjusted) grew by $686.8 billion showing that it took $5.68 of new debt for each dollar increase in GDP. What must be noted is that for the thirty years prior to the late 1970s the credit-to-GDP ratio held steady around 1:1.4.

Exponential debt growth in relation to income and GDP growth stops at some point. I believe we could be there now. The following chart illustrates that US household debt service costs as a percentage of disposable income seems to have reached a plateau at around 14.4%.

Source: www.contraryinvestor.com…

And this chart shows US savings rates at around zero as a percentage of personal income.

Source: Michael Hodges America’s Total Debt Report

These three charts together indicate that US households may already have hit a ‘debt wall.’ That is, with no savings additional new expenditures require additional debt.

It is no wonder that mortgage foreclosures, auto and credit delinquencies, etc., are rising dramatically. Americans have gotten to this point as they sought fulfillment almost exclusively in the material world around them.

It is possible that the US Federal Reserve and the financial system will continue to produce ever increasing amounts of debt relative to national income and GDP. This would only further exacerbate the decline in debt productivity. However, should this happen, watch out for much higher inflation.

In the years ahead many Americans will need to look more within themselves, rather than to material goods, to find personal fulfillment.

© Ron Robins, 2008

Update December 14, 2007

Media relentlessly publish the latest government statistics, and markets react to them, sometimes violently. Often your paycheque, government support payments and investment income are significantly influenced by them. But are they valid? Some astute economists and statisticians conclude there is obfuscation of these statistics, and subsequent misrepresentation of them in the media - who usually have neither the time nor expertise to examine them. Take the US ‘consumer price index’ or CPI. These authoritative observers note that the current US CPI incorporates numerous and continuous changes in components and weightings of components within the index, rendering it a mostly theoretical exercise based on highly questionable hypotheses. 

According to John Williams (a private New Jersey consulting economist who has specialized in government statistics for several decades), the “Cost of living was being replaced by the cost of survival. The old system told you how much you had to increase your income in order to keep buying steak. The new system promised you hamburger, and then dog food, perhaps, after that.” (The old system, Mr. Williams says, existed prior to the Clinton Administration.)

On his website at http://www.shadowstats.com/cgi-bin/sgs/article/id=343, Mr. Williams states that, “Inflation, as reported by the [US] Consumer Price Index (CPI) is understated by roughly 2.7% per year… due to recent redefinitions of the series as well as to flawed methodologies, particularly adjustments to price measures for quality changes.” 

Mr. Williams discusses how the government statisticians include a concept called ‘hedonics’ to adjust values in the index. He states, “Hedonics adjusts the prices of goods for the increased pleasure the consumer derives from them. That new washing machine you bought did not cost you 20% more than it would have cost you last year, because you got an offsetting 20% increase in the pleasure you derive from pushing its new electronic control buttons instead of turning that old noisy dial, according to the BLS [US Bureau of Labor Statistics].”

Williams continues, “When gasoline rises 10 cents per gallon because of a federally mandated gasoline additive, the increased gasoline cost does not contribute to inflation. Instead, the 10 cents is eliminated from the CPI because of the offsetting hedonic thrills the consumer gets from breathing cleaner air. The same principle applies to federally mandated safety features in automobiles. I have not attempted to quantify the effects of questionable quality adjustments to the CPI, but they are substantial.” 

The way US housing costs are included is another oddity, keeping that component — at 32% of the CPI — low. Despite two-thirds of the US population living in their own homes, the statisticians use theorized ‘imputed’ home rents as the basis for the housing statistic! Of course rents have been virtually stagnant for years — even going down in many cities due to overbuilding — while home purchase prices, insurance and local taxes, etc., have been going through the roof! 

For those Americans dependent on CPI adjustments to their welfare, social security or other government payments, they have had their payments massively depressed. Williams says that US government welfare and  social security payments are now 70% lower than what they would have been had the old 1970s style CPI been used with its fixed basket of goods. 

Another astute statistician, Jim Willie, elaborates further on this point. In Domino Distortions from Inflation, an article on his website at http://www.goldenjackass.com/jwarticles.html, he comments, “In my view, the [US] CPI has become little more than a measure intended to exploit the trend of falling imported finished product prices, in order to keep cost of living raises down in US Government pensions of various types…The CPI is kept low by ignoring numerous rising prices, such as property taxes, town usage fees (water, sewer, sanitation), professional services (doctor, dental, lawyer), home services (carpentry, plumbing, electrical, roofing), college tuition, restaurant meals, sports club fees, and more.” 

The US CPI affects not only Americans, but consumers and investors everywhere. US domestic and global interest rates, bond yields, and returns from many other investments — all are significantly influenced by it.

It is worth remembering that the BLS is headed by a political appointee, who just may have certain biases towards statistical methodologies that most please the government — as well as to what gets out to the media.

Reviewing the December 2007 charts on Mr. Williams’ website, we can easily see the startling differences in outcomes with the varying CPI methodologies used over the past thirty years. Using the CPI methodology as it was in 1980 shows inflation today rising +12% year-over-year; employing the CPI methodology as of 1990 shows inflation higher now by +7.5%. However, today’s BLS press release has their CPI-U (urban dwellers) gaining just +4.3% over the past year!

Is the current US government reported CPI presented to play down inflation, to artificially reduce interest rates, social secuurity payments, and government payouts dependent on CPI indexing? I believe so. And it is simply unethical. As the public begins to see through these deceptions, an enlightened economics can begin to truly flourish!

© Ron Robins, 20007 

The business world waits with trepidation, the first Friday of each month, the release of the US unemployment/employment numbers. Stock, bond, currency and commodity markets often swing wildly with their release. The media focus on the numbers presented, and discuss their relevance to economic activity. But where is the analysis, the critique, of how these numbers are generated — or of their actual reliability?

Do all economists really believe that the US government’s unemployment data (and other statistics too) are beyond reproach? Are the big banks’ economists too afraid to dig into the numbers for fear of offending or confusing employers and clients? Where is the role of honesty, of ethical responsibility, to the publics these institutions serve?

Fortunately, discussion concerning the ethics and reliability of economic statistics does occasionally appear.

For instance, last year Philipp Bagus asserted in an article, The Problem of Accuracy of Economic Data, August 17, 2006, (http://www.mises.org/story/2280) “[That] we … face the question of why the problem of accuracy of economic data is rarely mentioned or passed over in silence in economics, while in the physical sciences this problem is widely acknowledged.” Further, “In contrast to physics, there is still no estimate of statistical error within economics. The various sources of error that come into play in the social sciences suggest that the error in economic observations is substantial… Economic statistics cannot be accepted at face value.”

In my research on US unemployment data, I have discovered some disquieting information. First of all, they concern the elimination of ‘discouraged workers,’ who used to be in the figures.

Discouraged workers are those who have been looking for employment for more than a year and have given-up looking for a job. They used to be included in the main unemployment numbers, but are now, conveniently left out! John Williams, statistician and economist, believes that when ‘discouraged’ workers and other ‘distorting factors’ are accounted for, then the true unemployment rate, measured in much the same way as it had been historically, would be closer to 12%! (See Welling@Weedon, February 21, 2006, Shadowing Reality interview with John Williams). At the time of Mr. Williams citing this, the US February 2006 unemployment rate was 4.7%, which is the same as for November 2007.

The second major concern is the inclusion in the non-seasonalized data — which influences the media headlined seasonally adjusted numbers — of escalating theoretically derived employment numbers from the business ‘Birth-Death Model.’ This model created by the US Bureau of Labor Statistics (BLS), tracks the purported, yet hypothetical, net employment changes caused by business births and deaths.

Notice how the job gains in the Birth-Death Model have grown from less than half in 2004 to almost equalling the total employment gains in 2007? It begs the question as to how much of 2007’s employment gains are theoretically derived from the Birth-Death Model, and how much are real? The BLS appears silent on this point. With regard to the Birth-Death Model, the BLS states, “[The] BLS will continue researching alternative model-based techniques for the net birth/death component; it is likely to remain as the most problematic part of the estimation process.” Yes, it is certainly problematic.

The lack of analysis of jobs and other US economic data by mainstream economists and media is abysmal. Let economists and business journalists especially, take a lead in an illuminating debate around the make-up and ethics of such economic statistics. So far these individuals have really let down the publics they serve in this regard.

© Ron Robins, 20007

Revised January 13, 2008

Lost to modern economics: Consciousness governs human economic behaviour. Enlightened Economics brings consciousness back.
Modern economics seems to have forgotten the obvious. The quality and actions of our individual and collective consciousness governs economic behaviour. For example, in the US it has become fashionable to believe that accumulating debt does not matter. That is fine until the bills mount, become unpaid, and causes debt defaults which then precipitate an economic crisis! Thus, the quality of our consciousness and thinking process profoundly impacts economics. Yet there is no discussion of this in economics today.

A new economics that accounts for changes in the quality and development of our individual and collective consciousness is needed. I call this new economics, Enlightened Economics! Here I examine what consciousness is, its underpinning in natural law, and how it functions. I emphasize that consciousness in its fulfilled, developed state, will bring the ‘dismal science’ of economics to an evolved and higher level — to the status of Enlightened Economics.

What is consciousness?
Human consciousness is defined in many ways. I find it preferable to understand it in an Indian Vedic, or Jungian, sense. That is, at its basis it is interconnected to everything else, is supremely intelligent, and infinitely dimensioned. In physics, it is represented as the ultimate field of super-unification in unified field theories. In Vedic terms, it is spoken of ‘Brahm’ or totality, the ultimate universal entity, and embodied as ‘atma’ in the individual.

For if our very own consciousness is at the basis of everything, it then also possesses the ability to be ‘all-knowing.’ From a ‘markets sense’ this infers the theoretical ability to be knowledgeable about all things at all times. Not that one is cognizant of all things simultaneously, but one has the ability to act from that level of all knowledge in a way that proves spontaneously in accord with the fundamental laws of nature. In this way, individuals with a developed consciousness think and act in accordance with natural law.

Consciousness, the basis of evolution
Nature is forever changing and evolving. However, when one looks back over millennia, for many of us it seems as if there is pattern, an underlying intelligence governing change and the evolution of the entire universe. For instance, the human embryo grows into a baby. It does not grow into an elephant! Natural laws exist governing the evolution of all life.

Consciousness the governor of individual activity
For individuals to fully engage this level of nature’s functioning requires transcending the surface levels of thought and mental functioning. Arriving at that source of thought, the fountainhead of consciousness, is the unified field of natural law. Here the individual experiences peace, silence and bliss. (Personally, I have found Transcendental Meditation to be the most effortless, practical and effective scientific technique to accomplish this. On a collective level, extraordinary research shows that it only takes a few individuals rising in higher consciousness to effect positive changes in collective consciousness. Another research project, among many, demonstrating the existence of a collective consciousness is based at Princeton University, and called the Global Consciousness Research Project.)

The quality of our consciousness governs what we buy as well as our ability to fulfill desires
I believe human evolution is all about the development of our consciousness and its alignment with natural law. And that this is where humanity is heading. Our desires, wants, actions and purchases will be reflective of what nature ‘itself” (us) wants and increasingly reflective of the higher aspirations of a more integrated collective consciousness. Since humans everywhere want very similar things – prosperity, happiness, health, safety, and higher consciousness – it will mean that as human consciousness evolves our needs will be more refined.

The goods and services purchased by people with stressed-out, unfulfilled minds – and likely the largest consumers of tobacco, gambling products, etc. – will be be very different from individuals who enjoy higher consciousness and fulfilled minds. As an example, the latter may well be greater consumers of ‘green’ products, educational services, etc. In addition, a fully-developed mind will have the ability, creativity, and capacity to much more easily fulfill desires.

Unevolved consciousness and its headlong pursuit of Gross Domestic Product (GDP), debt, and other sins
The maddening preoccupation with GDP today is typical of the stressed, unfulfilled, unenlightened mind. Without the experience of the profundity of the peace and bliss that characterizes the enlightened mind, individuals believe their desires and happiness can only be fulfilled in the material world. For such individuals, they are as if lost in a fog containing fleeting worldly pleasures. Driven like a drug addict they borrow (as mentioned earlier) far beyond their means to keep spending. Last year (2007), according to Stephen Roach of Morgan Stanley, consumption in the US was at an all time high of 72% of GDP. This is significantly beyond the range of other developed countries. It leaves a legacy of extraordinarily bloated trade and current account deficits and total credit market debt of over 350% of GDP.

There has never been a time in US history, nor in any modern developed country, where debt has grown to such a staggering proportion of its economy. The vast majority of Americans are unable to appreciate the formidable challenge this poses to its economic viability. (And, unfortunately, the prescription being advanced by economic elites and most of the American presidential hopefuls to heal this wound in US society is – more spending and debt!)

Consciousness is the missing ingredient to advancing economic understanding
No, the only way out for Americans to avoid an extraordinary economic decline in the years ahead is for them to experience that field of inner peace and intelligence within their own consciousness. It will create greater balance and creativity in their minds and eliminate their ‘drug dependent’ like attachment to the fog of only desiring material wants.

Thus the missing ingredient — the introduction of the role of consciousness (and the knowledge of natural law) — is what will bring fulfillment to economics, both in America and around the world. Enlightened Economics and its incorporation of consciousness will bring a new light to the dismal science.

© Ron Robins, 2008

For each of the past thirty years or so, total US debt (government, business, consumer, etc.) has grown much faster than either national income or Gross Domestic Product (GDP). (See chart below: ‘Total America Debt.’)

 
Graph from the Grandfather Economic Report by Michael Hodges

I believe that this debt growth is likely to end in the next few years — or sooner — for the simple reason that creditors will fear non-repayment of principal! Consumers’ ability to take-on more debt is extremely limited, as savings rates are close to zero and continue trending down (see chart below ’Personal Savings Rate’). When creditors begin to back-off lending, the effects on US growth will be decidedly negative unless the country can learn to create growth on much less debt. This is possible, as the US came close to that between 1950 -1980 (again, see above chart ‘Total America Debt’). 

Graph from the Grandfather Economic Report by Michael Hodges

Why has debt grown so much faster than income or GDP?
I believe there are two ways of understanding the furious pace of US debt growth.  Firstly, I think it is a failure of individual consciousness, and secondly, a failure of collective consciousness as it relates to federal and international economic or financial structures.

It is primarily a failure of individual consciousness as it relates to the lack of personal fulfillment and critical thinking. Bereft of inner fulfillment, the individual seeks it mostly in material well-being. Thus he or she focuses, uncritically, on material accumulation, no matter what the cost, and avails themselves with massive amounts of debt to satisfy that material quest. Just like a drug junkie, they need more and more ‘stuff’ to sustain the thrill.

It is a failure of federal and international economic or financial structures because they have encouraged mass, loose credit, and unfettered monetary expansion and leverage. Examples of this are many. They include:

• The lowering of bank lending standards (i.e. the sub-prime mortgage fiasco).
• Massive growth of money supply (http://www.shadowstats.com/cgi-bin/sgs/data modeling US M3 growth at 14+% annually, many times faster than GDP growth).
• US Federal Reserve’s forcibly reducing market interest rates (especially between the years 2002-5).
• Foreign lending to the US of huge, accumulated dollar surplus holdings by China, Japan, and others in order to help keep US interest rates low and maintain, forced, low rates of exchange for their own currencies.
• The lack of international oversight (read collective consciousness) regarding financial leverage and the development of over five hundred trillion dollars in derivatives (with a ‘notional’ value forty times the size of the US economy) and which Warren Buffett has labeled, ‘potential weapons of financial mass destruction.’

How will this debt growth stop?
The credit growth stops when creditors become nervous about repayment of their principal. Loan standards tighten and a credit crunch ensues. This is beginning to happen. However, we are just in the early stages of this process. Attempting to mitigate a credit collapse, the US Federal Reserve, European Central Bank, Bank of England, Bank of Japan, and others are beginning to provide huge sums to lenders who get into trouble and infuse into financial markets unimaginable sums to aid market liquidity. Thus they hope to convince lenders to keep lending.

However, this whole process of pushing liquidity into the markets is flawed from the start, as it circles round to the numerous Americans not being able to meet their mortgage or other loan payments to begin with. Mortgage default rates are skyrocketing (RealtyTrac Inc. says they are up 100.1% in third quarter of 2007 over one year ago) and credit card debt defaults are rising too. With enormous loan write-offs, the capital of lending institutions will also be lower, requiring them to reduce their outstanding loans even further. Eventually, no matter how much the central banks push money onto the lenders, the lenders begin to balk at offering new loans, while overstretched consumers resist taking on new debt. Before this process ends, monetary and price inflation could escalate and create a possible hyper-inflationary environment, leading to a classic deflationary bust.

The conditions for non-debt growth. The way forward.
Conditions for economic growth where increases in debt and income are better balanced, are possible. This can be attained if Americans — and individuals everywhere — first gain more inner fulfillment and improve their ability to think critically. That will bring greater balance and creativity to their minds and reduce their addiction to material goods. It requires the materialistic drug junkie to go on ‘methadone drug replacement programme’ to ‘chill-out’ and see the world anew.

Please do not misunderstand me about the need for continuing gains in material comforts and economic security. Such things are fundamental to human life and progress. But practically, Americans must get back to much higher rates of saving to reduce their demand for debt and to re-balance their economy.

Historically, American savings rates have been 10-15+% of disposable income. In part, that was due to the fact that individuals living in past decades did not have the comprehensive government and private safety nets of today, nor was credit so easily available.

Over the longer term though, higher savings rates will provide superior financial stability and income for consumers, while providing the foundation for sound economic growth.

On the collective level, a similar psychological transformation has to occur among those who govern federal and international, economic and financial structures. The governors and directors of such institutions have to go back to the mindset of Paul Volker, who as Chairman of the US Federal Reserve in 1980, stood fast against the enormous threat of inflation. He raised interest rates to as high as 19%. America then suffered its worst recession since the 1930s. But he possibly saved the US from something much worse. That could have been a hyper-inflationary event possibly leading to a depression on an unimaginable scale.

I am not saying interest rates need to go anywhere near 19%. What I am saying is that the present mindset of the individuals at the top of the economic and financial establishment of throwing ‘money on to the fire’ by downward manipulation of interest rates and encouraging consumers to take-on even more debt – is simply nuts! (I would love to talk more about the dangers of present day central, and fractional reserve banking, but I will leave that for another post!)

At the present time, despite the protestations to the contrary by Mr. Paulson, the Treasury Secretary, the American government probably wants a lower US dollar versus other major currencies in order to reduce its trade and current account deficits. This would help the US to stimulate exports and jobs at home, as well as pump-up the earnings of US based companies who translate their foreign currency profits into dollars. This, therefore, would also help to support US stock prices. Conversely, at home, higher prices of imported goods would reduce material consumption, help slow down consumer loan demand and encourage savings.

The Euro, Canadian and other floating currencies are rising fast against the US dollar. However, the big Asian ‘partners’, China and Japan do not want to see their currencies appreciate against the US dollar. At this time it looks like there is paralysis at the international level to adjust exchange rates to market levels that allow for free-market determination of rates that incorporate fundamental trade and services imbalances. In fact, we might be close to an era where countries engage in competitive devaluations of their currencies.

Such currency ‘wars’ is what the French President, Mr. Nicolas Sarkozy, recently described as being entirely possible. Following on from that could be trade protectionism and a repeat of the 1930s trade wars.

Such national, international and global deadlocks must, and can only be resolved with a change in consciousness in America and all the participating nations. The reduction of US debt and increasing its savings rates is an international enterprise. And it can be done peacefully with a change in individual and collective consciousness, or forcefully and painfully, which will happen, if the change in consciousness does not occur soon!

© Ron Robins, 20007

Investing for the Soul (www.investingforthesoul.com) is a site I have developed since 2002. Its premise is that if we desire a better world, and/or are concerned about our spiritual development, about ethics, or the environment, etc., then we must incorporate such higher values in investing decisions. The reason for this is that when we invest in a company, or many companies in the case of a mutual fund, we share in the responsibility for the activities of those companies as well as participate in the outcomes of their corporate actions.

So let us invest in companies whose activities we believe are most helpful to us spiritually, ethically, and for life, generally! Helping you accomplish such goals and available at the Investing for the Soul website are pages covering: Ethical Investing News And Commentary, Article Archives, Books, Research Links, Ethical Investing Services and Ethical Investing Workshops.

By applying our ethical and higher values to investing, we not only help create a better life for all of us, but potentially enjoy higher profits from our investments as well. The accumulating masses of investment reports and studies (see Article Archives) suggest that outperformance of portfolio returns is frequently possible by employing ethical investing strategies.

I know investors will find the news, information and resources at Investing for the Soul invaluable with regard to their investing performance and for their personal fulfillment.

© Ron Robins, 20007